Kalkrand Village Council fails to improve (cont.)

As mentioned in the previous edition, for the financial years 2010, 2011 and 2012, the Auditor-General could not express an audit opinion on Kalkrand Village Council’s financial statements and position, because its books were still in such a mess.
The financial position, capital expenditure, trade accounts, current assets versus current liabilities and contributions from Government were discussed last week, including two of the reasons why the AG had to disclaim his opinion on the council’s financial statements and position.

Here are the rest of the reasons for the disclaimer:

Trade receivables
The report states the following:
No list of trade receivables was available for audit purposes.
The auditors are of the opinion that the provision for bad debts was understated by N$494 695 (2012).
No information regarding the Build Together Fund could be provided for audit purposes.

The inhabitants of the village are its heartbeat. They should be provided with proper and correct service bills and records. If the council has no control over who owes what and sends out wrong bills, people will be hesitant to pay their dues.
Record-keeping is extremely important and how difficult can it be? Take the water and electricity meter readings, work out the debt and charge the consumers for these, as well as other services rendered. Payments must be identified and credited to the consumer (who made the payment)’s account.
Proper records relating to the Build Together project are also important in ensuring that those who received loans to build houses pay their dues on time.

Trade and other payables
The auditors found that:
No reconciliations of trade and other receivables were available for audit purposes.
No records for the provision of leave were available at the Village Council.

Without such records, the auditors were unable to confirm the correctness of the amounts reflected in the balance sheet.
Expenditure vouchers must be worked through for the first three months after year end to determine any invoices, which relate to the previous financial year. These invoices must then be listed and brought to account as creditors. The list serves as a supporting voucher for audit purposes.
Leave records must also be kept accurately to ensure that staff does not exceed the approved annual leave allocation. Leave credit must be calculated with the relevant remuneration to make provision in the financial statements.

The auditors found that the investments reflected in the financial statements had been overstated by N$288 883.

The council should obtain confirmation of all investments held at financial institutions at the end of each financial year and adjust its balances in the general ledger accordingly. This would help avoid any difference between their records and those of the council.

Bank and cash
The bank balance on the balance sheet reflects an unfavourable balance of 
N$629 078. The bank statements reflect a favourable balance of N$295 258.
No bank reconciliations could be provided for audit purposes and the auditors were unable to verify the correctness and completeness of the bank balance recorded in the balance sheet.

The cash-book balance must be reconciled with the balance reflected on the bank statements each and every month to ensure all the transactions for the month have been properly recorded. Without such reconciliations, the council is at risk of having mistakes or any irregularities going through unnoticed for long periods of time.

Salaries and wages
Salaries and wages were overstated by N$373 564 in the financial statements.

Although this issue was not mentioned as reason for the disclaimed audit opinion, it still appears to be a material amount, which should have been included in the reasons. Unfortunately, the report does not elaborate on the reasons of the misrepresentation, but it is important for the council to ensure the amounts reflected on the payroll agree with the figures shown in the general ledger.

Income and expenses
Income and expenses could not be verified due to a lack of supporting documentation.

This is unheard of. How is it possible that payments are not filed in cheque number order together with the relevant invoices and other documentation? How can one receive revenue without issuing a proper receipt and refer this to the relevant invoice or other documentation? A course on record filing seems to be extremely necessary at the council.

VAT and P.A.Y.E
No P.A.Y.E. returns were submitted to the Directorate: Inland Revenue. No provision has been made in the financial statements for outstanding P.A.Y.E.
Included in trade and other payables is an amount of N$592 505 (2012) for VAT payable. Due to a lack of supporting documentation, the auditors were unable to verify the accuracy of this amount.

One wonders how the staff will be able to fill in their income tax returns if they do not receive a P.A.Y.E certificate from the council. These certificates have to be reconciled with the amounts paid to the Receiver of Revenue by the council during the year.
VAT records need to be reconciled with the invoices from the Receiver of Revenue and any corrections need to be effected before year-end. This issue was raised by the auditors but not included as one of the reasons for the disclaimed audit opinion.
The above-mentioned shortfalls are based on AG’s 2012 report but most also apply to the other financial years under review.